Chapter 4: The Three Formulas of the Circuit

The three formulas may be set down in the following manner, using Tc for
“total circulation process”:

I. M — C ... P ... C' — M'
II. P ... Tc ... P
III. Tc ... P (C')

If we combine all three forms, all premises of the process appear as its
result, as a premise produced by it itself. Every element appears as a
point of departure, of transit, and of return. The total process presents
itself as the unity of the processes of production and circulation. The
process of production becomes the mediator of the process of circulation
and vice versa.

All three circuits have the following in common: The self-expansion
of value as the determining purpose, as the compelling motive. In I this
is expressed in its form. Formula II begins with P, the very process of
creating surplus-value. In III the circuit begins with the self-expanded
value, even if the movement is repeated on the same scale.

As C — M means M — C for the buyer, and M — C means C — M for the seller, the circulation of capital presents only the ordinary metamorphosis of commodities, and the laws evolved with regard to it (Buch I, Kap. III,
2) [English edition: Ch. III, 2. — Ed.] on the mass of money in
circulation are valid here. However, if we do not cling to this formal
aspect but rather consider the actual connection between the metamorphoses
of the various individual capitals, in other words, if we study the connection
between the circuits of individual capitals as partial movements of the
process of reproduction of the total social capital, then the mere change
of form of money and commodities cannot explain the connection.

In a constantly revolving circle every point is simultaneously
a point of departure and a point of return. If we interrupt the rotation,
not every point of departure is a point of return. Thus we have seen that
not only does every individual circuit presuppose (implicite) the
others, but also that the repetition of the circuit in one form comprises
the performance of the circuit in the other forms. The entire difference
thus appears to be a merely formal one, or as a merely subjective distinction
existing solely for the observer.

Since every one of these circuits is considered a special form
of this movement in which various individual industrial capitals are engaged,
this difference exists only as an individual one. But in reality every
individual industrial capital is present simultaneously in all three circuits.
These three circuits, the forms of reproduction assumed by the three forms
of capital, are made continuously side by side. For instance, one part
of the capital-value, which now performs the function of commodity-capital,
is transformed into money-capital, but at the same time another part leaves
the process of production and enters the circulation as a new commodity-capital.
The circuit form C' ... C' is thus continuously described; and so are the
other two forms. The reproduction of capital in each one of its forms and
stages is just as continuous as the metamorphosis of these forms and the
successive passage through the three stages. The entire circuit is thus
a unity of its three forms.

We assumed in our analysis that capital-value in its entire magnitude
acts as money-capital, productive-capital or commodity-capital. For instance,
we had those £422 first entirely as money-capital, then we transformed
them wholly into productive capital, and finally into commodity-capital,
into yarn of the value of £500 (containing £78 worth of surplus-value).
Here the various stages are just so many interruptions. So long as, e.g.,
those £422 retain their money-form, that is to say, until the purchases
M — C (L plus MP) are made, the entire capital exists and functions only
as money-capital. As soon as it is transformed into productive capital,
it performs neither the function of money-capital nor of commodity-capital.
Its entire process of circulation is interrupted, as soon as it functions
in one of its two circulation stages, either as M or as C'. Consequently,
the circuit P ... P would represent not only a periodical renewal of the
productive capital but also the interruption of its function, the process
of production, up to the time when the process of circulation is completed.
Instead of proceeding continuously, production would take place in jerks
and would be renewed only in periods of accidental duration, according
to whether the two stages of the process of circulation are got through
with quickly or slowly. This would apply for instance to a Chinese artisan
who works only for private customers and whose process of production ceases
until he receives a new order.

This is indeed true of every single part of capital that is in
motion, and all parts of capital go through this motion in succession.
Suppose that the 10,000 lbs. of yarn are the weekly product of some spinner.
These 10,000 lbs. of yarn leave the sphere of production entirely and enter
the sphere of circulation; the capital-value contained in it must all be
converted into money-capital, and so long as this value continues in the
form of money-capital it cannot enter anew into the process of production.
It must first go into circulation and be reconverted into the elements
of productive capital, L plus MP. The circuit-describing process of capital
means constant interruption, the leaving of one stage and the entering
into the next, the discarding of one form and the assuming of another.
Each one of these stages not only presupposes the next but also excludes
it.

But continuity is the characteristic mark of capitalist production,
necessitated by its technical basis, although not always absolutely attainable.
Let us see then what happens in reality. While, e.g., the 10,000 lbs. of
yarn appear in the market as commodity-capital and are transformed into
money (regardless of whether it is a paying or purchasing medium or only
money of account), new cotton, coal, etc., take the place of the yarn in
the process of production, have therefore already been reconverted from
the money-form and commodity-form into that of productive capital, and
begin to function as such. At the same time that these 10,000 lbs. of yarn
are being reconverted into money, the preceding 10,000 lbs. of yarn are
going through the second stage of their circulation and are being reconverted
from money into the elements of productive capital. All parts of capital
successively describe circuits, are simultaneously at its different stages.
The industrial capital, continuously progressing along its orbit, thus
exists simultaneously at all its stages and in the diverse functional forms
corresponding to these stages. That part of industrial capital which is
converted for the first time from commodity-capital into money begins the
circuit C' ... C', while industrial capital as a moving whole has already
passed through that circuit. One hand advances money, the other receives
it. The inauguration of the circuit M ... M' at one place coincides with
the return of the money at another place. The same is true of productive
capital.

The actual circuit of industrial capital in its continuity is
therefore not alone the unity of the processes of circulation and production
but also the unity of all its three circuits. But it can be such a unity
only if all the different parts of capital can go through the successive
stages of the circuit, can pass from one phase, from one functional form
to another, so that the industrial capital, being the whole of all these
parts, exists simultaneously in its various phases and functions and thus
describes all three circuits at the same time. The succession ]das Nacheinander] of these parts is here governed by their co-existence [das Nebeneinander], that is to say, by the division of capital. In a ramified factory system the product is constantly in the various stages of its process of formation
and constantly passes from one phase of production to another. As the individual
industrial capital has a definite size which depends on the means of the
capitalist and which has a definite minimum magnitude for every branch
of industry, it follows that its division must proceed according to definite
proportions. The magnitude of the available capital determines the dimensions
of the process of production, and this again determines the dimensions
of the commodity-capital and money-capital in so far as they perform their
functions parallel with the process of production. However co-existence,
by which continuity of production is determined, is only due to the movement
of those parts of capital in which they successively pass through their
different stages. Co-existence is itself merely the result of succession.
If for instance C' — M' as far as one part is concerned, if the commodity
cannot be sold, then the circuit of this part is interrupted and no replacement
by its means of reproduction takes place; the succeeding parts, which emerge
from the process of production in the shape of C', find the change of their
functions blocked by their predecessors. If this lasts for some time, production
is restricted and the entire process brought to a halt. Every stagnation
in succession carries disorder into co-existence, every stagnation in one
stage causes more or less stagnation in the entire circuit of not only
the stagnant part of capital but also of the total individual capital.

The next form in which the process presents itself is that of
a succession of phases, so that the transition of capital into a new phase
is made necessary by its departure from another. Every separate circuit
has therefore one of the functional forms of capital for its point of departure
and point of return. On the other hand the aggregate process is in fact
the unity of the three circuits, which are the different forms in which
the continuity of the process expresses itself. The aggregate circuit presents
itself to every functional form of capital as its specific circuit and
every one of these circuits is a condition of the continuity of the total
process. The cycle of each functional form is dependent upon the others.
It is a necessary prerequisite of the aggregate process of production,
especially for the social capital, that it is at the same time a process
of reproduction and hence a circuit of each one of its elements. Various
fractional parts of capital pass successively through the various stages
and functional forms. Thanks to this every functional form passes simultaneously
with the others through its own circuit, although always a different part
of capital finds its expression in it. One part of capital, continually
changing, continually reproduced, exists as a commodity-capital which is
converted into money; another as money-capital which is converted into
productive capital; and a third as productive capital which is transformed
into commodity-capital. The continuous existence of all three forms is
brought about by the circuit the aggregate capital describes in passing
through precisely these three phases.

Capital as a whole, then, exists simultaneously, spatially side
by side, in its different phases. But every part passes constantly and
successively from one phase, from one functional form, into the next and
thus functions in all of them in turn. Its forms are hence fluid and their
simultaneousness is brought about by their succession. Every form follows
another and precedes it, so that the return of one capital part to a certain
form is necessitated by the return of the other part to some other form.
Every part describes continuously its own cycle, but it is always another
part of capital which exists in this form, and these special cycles form
only simultaneous and successive elements of the aggregate process.

The continuity — instead of the above-described interruption
— of the aggregate process is achieved only in the unity of the three
circuits. The aggregate social capital always has this continuity and its
process always exhibits the unity of the three circuits.

The continuity of the reproduction is at times more or less interrupted
so far as individual capitals are concerned. In the first place the masses
of value are frequently distributed at various periods in unequal portions
over the various stages and functional forms. In the second place these
portions may be differently distributed, according to the character of
the commodity to be produced, hence according to the particular sphere
of production in which the capital is invested. In the third place the
continuity may be more or less broken in those branches of production which
are dependent on the seasons, either on account of natural conditions (agriculture,
herring catch, etc.) or on account of conventional circumstances, as for
instance in so-called seasonal work. The process goes on most regularly
and uniformly in the factories and mines. But this difference in the various
branches of production does not cause any difference in the general forms
of the circular process.

Capital as self-expanding value embraces not only class relations,
a society of a definite character resting on the existence of labour in
the form of wage-labour. It is a movement, a circuit-describing process
going through various stages, which itself comprises three different forms
of circuit-describing process. Therefore it can be understood only as a
motion, not as a thing at rest. Those who regard the gaining by value of
independent existence as a mere abstraction forget that the movement of
industrial capital is this abstraction in actu. Value here passes
through various forms, various movements in which it maintains itself and
at the same time expands, augments. As we are here concerned primarily
with the mere form of this movement, we shall not take into consideration
the revolutions which capital-value may undergo during its circuit. But
it is clear that in spite of all the revolutions of value, capitalist production
exists and can endure only so long as capital-value is made to create surplus-value,
that is, so long as it describes its circuit as a value that has gained
independence, so long therefore as the revolutions in value are overcome
and equilibrated in some way. The movements of capital appear as the action
of some individual industrial capitalist who performs the functions of
a buyer of commodities and labour, a seller of commodities, and an owner
of productive capital, who therefore promotes the circuit by this activity.
If social capital experiences a revolution in value, it may happen that
the capital of the individual capitalist succumbs to it and fails, because
it cannot adapt itself to the conditions of this movement of values. The
more acute and frequent such revolutions in value become, the more does
the automatic movement of the now independent value operate with the elemental
force of a natural process, against the foresight and calculation of the
individual capitalist, the more does the course of normal production become
subservient to abnormal speculation, and the greater is the danger that
threatens the existence of the individual capitals. These periodical revolutions
in value therefore corroborate what they are supposed to refute, namely,
that value as capital acquires independent existence, which it maintains
and accentuates through its movement.

This succession of the metamorphoses of capital in process includes
continuous comparison of the change in the magnitude of value of the capital
brought about in the circuit with the original value. If value’s acquisition
of independence of the value-creating power, labour-power, is inaugurated
by the act M — L (purchase of labour-power) and is effected during the
process of production as exploitation of labour-power, this acquisition
of independence on the part of value does not re-appear in that circuit,
in which money, commodities, and elements of production are merely alternating
forms of capital-value in process, and the former magnitude of value is
compared with capital’s present changed magnitude of value.

“Value,” argues Bailey against the acquisition of independence by value, an independence which is characteristic of the capitalist mode
of production and which he treats as an illusion of certain economists;
“value is a relation between contemporary commodities, because such only
admit of being exchanged for each other.” [See Bailey, Samuel, A Critical
Dissertation on the Nature, Measures, and Causes of Value; Chiefly in Reference
to the Writings of Mr. Ricardo and His Followers By the Author of Essays
on the Formation and Publication of Opinions, London, 1825, p. 72. — Ed.]

This he says against the comparison of commodity-values of different epochs,
a comparison which amounts only to comparing the expenditure of labour
required in various periods for the production of the same sort of commodities,
once the value of money has been fixed for every period. This comes from
his general misunderstanding, for he thinks that exchange-value is equal
to value, that the form if value is value itself; consequently commodity-value
can no longer be compared, if they do not function actively as exchange-values
and thus cannot actually be exchanged for one another. He has not the least
inkling of the fact that value functions as capital-value or capital only
in so far as it remains identical with itself and is compared with itself
in the different phases of its circuit, which are not at all “contemporary” but succeed one another.

In order to study the formula of the circuit in its purity it is not sufficient to postulate that commodities are sold at their value; it must also be assumed that this takes place with other things being equal. Take for instance the form P ... P, disregarding all technical revolutions within the process of production by which the productive capital of a certain
capitalist might be depreciated; disregarding furthermore all reactions
which a change in the elements of value of the productive capital might
have on the value of the existing commodity-capital, which might appreciate
or depreciate if a stock of it is on hand. Suppose the 10,000 lbs. of yarn,
C', have been sold at their value of £500; 8,440 lbs. equal to £422,
replace the capital-value contained in C'. But if the value of cotton,
coal, etc., has increased (we do not consider mere fluctuations in price),
these £422 may not suffice for the full replacement of the elements
of productive capital; additional money-capital is required, money-capital
is tied up. The opposite takes place when those prices fall. Money-capital
is set free. The process takes a wholly normal course only when the value-relations
remain constant; its course is practically normal so long as the disturbances
during the repetitions of the circuit balance one another. But the greater
these disturbances the greater the money-capital which the industrial capitalist
must possess to tide over the period of readjustment; and as the scale
of each individual process of production and with it the minimum size of
the capital to be advanced increases in the process of capitalist production,
we have here another circumstance to be added to those others which transform
the function of the industrial capitalist more and more into a monopoly
of big money-capitalists, who may operate singly or in association.

We remark incidentally that if a change in the value of the elements
of production occurs a difference appears between the form M...M' on one
side and of P ... P and C' ... C' on the other.

In M ... M', the formula of newly-invested capital, which first appears
as money-capital, a fall in the value of the means of production, such
as raw material, auxiliary material, etc., will permit of a smaller expenditure
of money-capital than before this fall for the purpose of starting a business
of a definite size, because the scale of the process of production (productive
power development remaining the same) depends on the mass and volume of
the means of production which a given quantity of labour-power can cope
with; but it does not depend on the value of these means of production
nor on that of the labour-power (the latter value affects only the magnitude
of self-expansion). Take the reverse case. If there is a rise in the value
of the elements of production of the commodities which constitute the elements
of the productive capital, then more money-capital is needed for the establishment
of a business of definite proportions. In both cases it is only the amount
of the money-capital required for new investment that is affected. In the
former case money-capital becomes surplus, in the latter it is tied up,
provided the accession of new individual industrial capital proceeds in
the usual way in a given branch of production.

The circuits P ... P and C' ... C' present themselves as M ...
M' only to the extent that the movement of P and C' is at the same time
accumulation, hence to the extent that additional m, money, is converted
into money-capital; here, too, we do not take into consideration the reaction
of such changes in value on those constituent parts of capital which are
engaged in the process of production. It is not the original expenditure
which is directly affected here, but an industrial capital engaged in its
process of reproduction and not in its first circuit; i.e.,
C' ... C,
the reconversion of commodity-capital into its elements of production,
so far as they are composed of commodities. When value (prices) fall three
cases are possible: The process of reproduction is continued on the same
scale; in that event a part of the money-capital existing hitherto is set
free and money-capital is accumulated, although no real accumulation (production
on an extended scale) or transformation of m (surplus-value) into an accumulation-fund
initiating and accompanying such accumulation has previously taken place.
Or the process of reproduction is carried on a more extensive scale than
ordinarily would have been the case, provided the technical proportions
admit it. Or, finally, a larger stock of raw materials, etc., is laid in.

The opposite occurs if the value of the elements of replacement of a
commodity-capital increases. In that case reproduction no longer takes
place on its normal scale (e.g., the working-day gets shorter); or additional
money-capital must be employed in order to maintain the old volume of work
(money-capital is tied up); or the money-fund for accumulation, when one
exists, is employed entirely or partially for the operation of the process
of reproduction on its old scale instead of for the enlargement of this
process. This is also tying up money-capital, except that here the additional
money-capital does not come from the outside, from the money-market, but
from the means of the industrial capitalist himself.

However, there may be modifying circumstances in P ... P and C'
... C'. If our spinning-mill proprietor for example has a large stock of
cotton (a large proportion of his productive capital in the form of a stock
of cotton), a part of his productive capital is depreciated by a fall in
the prices of cotton; but if on the contrary these prices rise, this part
of his productive capital appreciates. On the other hand, if he has tied
up huge quantities in the form of commodity-capital, for instance of cotton
yarn, a part of his commodity-capital, hence of his circuit describing
capital in general, is depreciated by a fall of cotton, or appreciated
by a rise in its prices. Finally take the process
C' — M — C. If C' — M, the realisation of the commodity-capital, has taken place before a change in the value of the elements of C, then capital is affected only
in the way indicated in the first case, namely in the second act of circulation,
M — C; but if such a change has occurred before C' — M has been effected, then, other conditions remaining equal, a fall in the price of cotton causes a corresponding fall in the price of yarn, and a rise in the price of cotton means conversely a rise in the price
of yarn. The effect on the various individual capitals invested in the
same branch of production may differ widely, according to the circumstances
in which they find themselves.

Money-capital may also be set free or tied up on account of differences
in the duration of the process of circulation, hence also in the speed
of circulation. But this belongs in the discussion on turnover. At this
point we are only interested in the real difference that becomes evident,
with regard to changes of values of the elements of productive capital,
between M ... M' and the other two circuit forms.

In the circulation section
M — C,
in the epoch of the already developed and hence prevailing capitalist mode
of production, a large portion of the commodities composing MP, the means
of production, is itself functioning as the commodity-capital of someone
else. From the standpoint of the seller, therefore, C' — M', the transformation
of commodity-capital into money-capital, takes place. But this is not an
absolute rule. On the contrary. Within its process of circulation, in which
industrial capital functions either as money or as commodities, the circuit
of industrial capital, whether as money-capital or as commodity-capital,
crosses the commodity circulation of the most diverse modes of social production,
so far as they produce commodities. No matter whether commodities are the
output of production based on slavery, of peasants (Chinese, Indian ryots).
of communes (Dutch East Indies), of state enterprise (such as existed
in former epochs of Russian history on the basis of serfdom) or of half-savage
hunting tribes, etc. — as commodities and money they come face to face
with the money and commodities in which the industrial capital presents
itself and enter as much into its circuit as into that of the surplus-value
borne in the commodity-capital, provided the surplus-value is spent as
revenue; hence they enter in both branches of circulation of commodity-capital.
The character of the process of production from which they originate is
immaterial. They function as commodities in the market, and as commodities
they enter into the circuit of industrial capital as well as into the circulation
of the surplus-value incorporated in it. It is therefore the universal
character of the origin of the commodities, the existence of the market
as world-market, which distinguishes the process of circulation of industrial
capital. What is true of the commodities of others is also true of the
money of others. Just as commodity-capital faces money only as commodities,
so this money functions vis-à-vis commodity-capital only as money.
Money here performs the functions of world-money.

However two points must be noted here.

First: as soon as act M — MP is completed, the commodities (MP)
cease to be such and become one of the modes of existence of industrial
capital in its functional form of P, productive capital. Thereby however
their origin is obliterated. They exist henceforth only as forms of existence
of industrial capital, are embodied in it. However it still remains true
that to replace them they must be reproduced, and to this extent the capitalist
mode of production is conditional on modes of production lying outside
of its own stage of development. But it is the tendency of the capitalist
mode of production to transform all production as much as possible into
commodity production. The mainspring by which this is accomplished is precisely
the involvement of all production into the capitalist circulation process.
And developed commodity production itself is capitalist commodity production.
The intervention of industrial capital promotes this transformation everywhere,
but with it also the transformation of all direct producers into wage-labourers.

Secondly: the commodities entering into the circulation of industrial
capital (including the requisite means of subsistence into which variable
capital, after being paid to the labourers, is transformed for the purpose
of reproducing their labour-power), regardless of their origin and of the
social form of the productive process by which they were brought into existence,
come face to face with industrial capital itself already in the form of
commodity-capital, in the form of commodity-dealer’s or merchant’s capital. And merchant’s capital, by its very nature comprises commodities of all
modes of production.

The capitalist mode of production presupposes not only large-scale
production but also, and necessarily so, sales on a large scale, hence
sale to the merchant, not to the individual consumer. If this consumer
is himself a productive consumer, hence an industrial capitalist, i.e.,
if the industrial capital of one branch of production supplies some other
branch of industry with means of production, direct sale by one industrial
capitalist to many others take place (in the form of orders, etc.). To
this extent every industrial capitalist is a direct seller and his own
merchant, which by the way is when he sells to a merchant.

Trading in commodities as the function of merchant’s capital is
a premise of capitalist production and develops more and more in the course
of development of such production. Therefore we occasionally take its existence
for granted to illustrate particular aspects of the process of capitalist
circulation; but in the general analysis of this process we assume direct
sale, without the intervention of a merchant, because this intervention
obscures various facets of the movement.

Cf. Sismondi, who presents the matter somewhat naively:

“Commerce employs considerable capital, which at first sight does not seem to be a part of that capital whose movement we have described.
The value of the cloth accumulated in the stores of the cloth-merchant
seems at first to be entirely foreign to that part of the annual production
which the rich gives to the poor as wages in order to make him work. However
this capital has simply replaced the other of which we have spoken. For
the purpose of clearly understanding the progress of wealth, we have begun
with its creation and followed it to its consumption. Then the capital
employed in cloth manufacturing, for instance, always seemed the same to
us; it was exchanged for the revenue of the consumer, it was divided into
only two parts, one of them serving as revenue of the manufacturer in the
form of the profit, the other serving as revenue of the labourers in the
form of wages for the time they were manufacturing new cloth.

“But it was soon found that it would be to the advantage of all
if the different parts of this capital were to replace one another and
that, if 100,000 ècus were sufficient for the entire circulation
between the manufacturer and the consumer, they should be divided equally
between the manufacturer, the wholesale merchant, and the retail merchant.
The first then did with only one-third of this capital the same work as
he had done with the entire capital, because as soon as his work of manufacturing
was completed he found out that a merchant would rather buy from him than
a consumer would. On the other hand the capital of the wholesaler was much
sooner replaced by that of the retailer... The difference between the sums
advanced for wages and the purchase price paid by the ultimate consumer
was considered the profit of those capitals. It was divided between the
manufacturer, the merchant and the retailer, from the moment that they
had divided their functions among themselves, and the work performed was
the same, although it had required three persons and three parts of capital
instead of one.” (Nouveaux Principes, I, pages 139-140.)

“All of them [the merchants] contributed indirectly to the production; for having consumption for its object, production cannot be regarded as
completed until the thing produced is placed within the reach of the consumer.”
(Ibid., p. 137)

In the discussion of the general forms of the circuit and in the
entire second book in general, we take money to mean metallic money, with
the exception of symbolic money, mere tokens of value, which are designed
for specific use in certain states, and of credit-money, which is not yet
developed. In the first place, this is the historical order; credit-production
plays only a very minor role, or none at all, during the first epoch of
capitalist production. In the second place, the necessity of this order
is demonstrated theoretically by the fact that everything of a critical
nature which Tooke and others hitherto expounded in regard to the circulation
of credit-money compelled them to hark back again and again to the question
of what would be the aspect of the matter if nothing but metal-money were
in circulation. But it must not be forgotten that metal-money may serve
as a purchasing medium and also as a paying medium. For the sake of simplicity,
we consider it in this second book generally only in its first functional
form.

The process of circulation of industrial capital, which is only
a part of its individual circuit, is determined by the general laws previously
set forth (Buch I, Kap. III), [English edition: Ch. III. — Ed.]
in so far as it is only a series of acts within the general circulation
of commodities. The greater the velocity of the currency of money, the
more rapidly therefore every individual capital passes through the series
of its commodity or money metamorphoses, the more numerous are the industrial
capitals (or individual capitals in the form of commodity-capitals) started
circulating successively by a given mass of money, for example £500.
The more the money functions as a paying medium, the more therefore —
for instance in the replacement of some commodity-capital by its means
of production — nothing but balances have to be squared, and the shorter
the periods of time when payments fall due, as for instance in paying wages,
the less money a given mass of capital-value therefore requires for its
circulation. On the other hand, assuming that the velocity of the circulation
and all other conditions remain the same, the amount of money required
to circulate as money-capital is determined by the sum of the prices of
the commodities (price multiplied by the volume of commodities), or, if
the quantity and value of the commodities are fixed, by the value of the
money itself.

But the laws of the general circulation of commodities are valid
only when capital’s circulation process consists of a series of simple
acts of circulation; they do not apply when the latter constitute functionally
determined sections of the circuit of individual industrial capitals.

In order to make this plain, it is best to study the process of
circulation in its uninterrupted interconnection, such as it appears in
the following two forms:

As series of acts of circulation in general, the process of circulation
(whether in the form of C — M — C or of M — C — M) represents the two antithetical series of commodity metamorphoses, every single one of which in its turn implies an opposite metamorphosis on the part of the alien commodity or alien money confronting the commodity.

C — M on the part of the owner of a commodity means M — C on the
part of its buyer; the first metamorphosis of the commodity appearing in
the form of M; the opposite applies to M — C. What has been shown concerning
the intertwining of the metamorphosis of a certain commodity in one stage
with that of another in another stage applies to the circulation of capital
so far as the capitalist functions as a buyer and seller of commodities,
and his capital on that account functions in the form of money opposed
to the commodities of another. But this intertwining is not to be identified
with the intertwining of the metamorphoses of capitals.

In the first place M — C (MP), as we have seen, may represent
an intermingling of the metamorphoses of different individual capitals.
For instance the commodity-capital of the spinning-mill owner, yarn is
partly replaced by coal. One part of his capital exists in the form of
money and is converted into the form of commodities, while the capital
of the capitalist producer of coal is in the form of commodities and is
therefore converted into the form of money; the same act of circulation
represents in this case opposite metamorphoses of two industrial capitals
(in different branches of production), hence an intertwining of the series
of metamorphoses of these capitals. But as we have seen the MP into which
M is transformed need not be commodity-capital in the categorical sense,
i.e., need not be a functional form of industrial capital, need not be
produced by a capitalist. It is always M — C on one side and C — M on the
other, but not always an intermingling of metamorphoses of capitals. Furthermore
M — L, the purchase of labour-power, is never an intermingling of metamorphoses
of capitals, for labour-power, though the commodity of the labourer, does
not become capital until it is sold to the capitalist. On the other hand
in the process C' — M', it is not necessary that M' should represent converted
commodity-capital; it may be the realisation in money of the commodity
labour-power (wages), or of the product of some independent labourer, slave,
serf, or community.

In the second place however it is not at all required for the
discharge of the functionally determined role played by every metamorphosis
occurring within the process of circulation of some individual capital
that this metamorphosis should represent the corresponding opposite metamorphosis
in the circuit of the other capital, provided we assume that the entire
production of the world-market is carried on capitalistically. For instance
in the circuit P ... P, the M which converts C' into money may be to the
buyer only the realisation in money of his surplus-value (if the commodity
is an article of consumption);
or in M' — C'
(where therefore already accumulated capital enters) M' may, as far as
the vendor of MP is concerned, enter into the circulation of his capital
only to replace his advanced capital or it may not re-enter at all by being
diverted into revenue expenditure.

Therefore the manner in which the various component parts of the aggregate
social capital, of which the individual capitals are but constituents functioning
independently, mutually replace one another in the process of circulation
— in regard to capital as well as surplus-value — is not ascertained
from the simple intertwinings of the metamorphoses in the circulation of
commodities — intertwinings which the acts of capital circulation have
in common with all other circulation of commodities. That requires a different
method of investigation. Hitherto one has been satisfied with uttering
phrases which upon closer analysis are found to contain nothing but indefinite
ideas borrowed from the intertwining of metamorphoses common to all commodity
circulation.

Natural Money and Credit Economy

One of the most obvious peculiarities of the movement in circuits of industrial
capital, and therefore also of capitalist production, is the fact that
on one hand the component elements of productive capital are derived from
the commodity-market and must be continually renewed out of it, bought
as commodities; and that on the other hand the product of the labour-process
emerges from it as a commodity and must be continually sold anew as a commodity.
Compare for instance a modern farmer of the Scotch lowlands with an old-fashioned
small peasant on the Continent. The former sells his entire product and
has therefore to replace all its elements, even his seed, in the market;
the latter consumes the greater part of his product directly, buys and
sells as little as possible, fashions tools, makes clothing, etc., so far
as possible himself.

Natural economy, money-economy, and credit-economy have therefore
been placed in opposition to one another as being the three characteristic
economic forms of movement in social production.

In the first place these three forms do not represent equivalent
phases of development. The so-called credit-economy is merely a form of
the money-economy, since both terms express functions or modes of exchange
among the producers themselves. In developed capitalist production, the
money-economy appears only as the basis of the credit-economy. The money-economy
and credit-economy thus correspond only to different stages in the development
of capitalist production, but they are by no means independent forms of
exchange vis-à-vis natural economy. With the same justification
one might contrapose as equivalents the very different forms of natural
economy to those two economies.

In the second place, since it is not the economy, i.e., the process
of production itself that is emphasised as the distinguishing mark of the
two categories, money-economy and credit-economy, but rather the mode of
exchange — corresponding to that economy — between the various agents
of production, or producers, the same should apply to the first category.
Hence exchange economy instead of natural economy. A completely isolated
natural economy, such as the Inca state of Peru, would not come under any
of these categories.

In the third place the money-economy is common to all commodity
production and the product appears as a commodity in the most varied organisms
of social production. Consequently what characterises capitalist production
would then be only the extent to which the product is created as an article
of commerce, as a commodity, and hence the extent also to which its own
constituent elements must enter again as articles of commerce, as commodities,
into the economy from which it emerges.

As a matter of fact capitalist production is commodity production
as the general form of production. But it is so and becomes so more and
more in the course of its development only because labour itself appears
here as a commodity, because the labourer sells his labour, that is, the
function of his labour-power, and our assumption is that he sells it at
its value, determined by its cost of reproduction. To the extent that labour
becomes wage-labour, the producer becomes an industrial capitalist. For
this reason capitalist production (and hence also commodity production)
does not reach its full scope until the direct agricultural producer becomes
a wage-labourer. In the relation of capitalist and wage-labourer, the money-relation,
the relation between the buyer and the seller, becomes a relation inherent
in production. But this relation has its foundation in the social character
of production, not in the mode of exchange. The latter conversely emanates
from the former. It is, however, quite in keeping with the bourgeois horizon,
everyone being engrossed in the transaction of shady business, not to see
in the character of the mode of production the basis of the mode of exchange
corresponding to it, but vice versa.[7]

The Meeting of Demand and Supply

The capitalist throws less value in the form of money into the circulation
than he draws out of it, because he throws into it more value in the form
of commodities than he withdrew from it in the form of commodities. Since
he functions simply as a personification of capital, as an industrial capitalist,
his supply of commodity-value is always greater than his demand for it.
If his supply and demand in this respect covered each other it would mean
that his capital had not produced any surplus-value, that it had not functioned
as productive capital, that the productive capital had been converted into
commodity-capital not big with surplus-value; that it had not drawn any
surplus-value in commodity form out of labour-power during the process
of production, had not functioned at all as capital. The capitalist must
indeed “sell dearer than he has bought, ” but he succeeds in doing so only
because the capitalist process of production enables him to transform the
cheaper commodity he bought — cheaper because it contains less value —
into a commodity of greater value, hence a dearer one. He sells dearer,
not because he sells above the value of his commodity, but because his
commodity contains value in excess of that contained in the ingredients
of its production.

The rate at which the capitalist makes the value of his capital
expand is the greater, the greater the difference between his supply and
his demand, i.e., the greater the excess of the commodity-value he supplies
over the commodity-value he demands. His aim is not to equalize his supply
and demand, but to make the inequality between them, the excess of his
supply over his demand, as great as possible.

What is true of the individual capitalist applies to the capitalist
class.

In so far as the capitalist merely personifies industrial capital,
his own demand is confined to means of production and labour-power. In
point of value, his demand for MP is smaller than his advanced capital;
he buys means of production of a smaller value than that of his capital,
and therefore of a still smaller value than that of the commodity-capital
which he supplies.

As regards his demand for labour-power, it is determined in point
of value by the relation of his variable capital to his total capital,
hence equals v : C. In capitalist production this demand thereby grows smaller
than his demand for means of production. His purchases of MP steadily rise
above his purchases of L.

Since the labourer generally converts his wages into means of
subsistence, and for the overwhelmingly larger part into absolute necessities,
the demand of the capitalist for labour-power is indirectly also a demand
for the articles of consumption essential to the working-class. But this
demand is equal to v and not one iota greater (if the labourer saves a
part of his wages — we necessarily discard here all credit relations —
he converts part of his wages into a hoard and to that extent does not
act as a bidder, a purchaser). The upper limit of a capitalist’s demand
is C, equal to c + v, but his supply is equal to c + v + s. Consequently
if the composition of his commodity-capital is 80c + 20v
+ 20s, his demand is equal to 80c + 20v, hence, considered from the angle of the value it contains, one-fifth smaller than his supply. The greater the percentage of the mass of surplus-value produced by him
(his rate of profit) the smaller becomes his demand in relation to his
supply. Although with the further development of production the demand
of the capitalist for labour-power, and thus indirectly for necessary means
of subsistence, steadily decreases compared with his demand for means of
production, it must not be forgotten on the other hand that his demand
for MP is always smaller than his capital. His demand for means of production
must therefore always be smaller in value than the commodity-product of
the capitalist who, working with a capital of equal value and under equal
conditions, furnishes him with those means of production. That many capitalists
and not only one do the furnishing does not alter the case. Take it that
his capital is £1,000, and its constant part £800; then his
demand on all these capitalists is equal to £800. Together they supply
means of production worth £1,200 for each £1,000 (regardless
of what share in each £1,000 may fall to each one of them and of
the fraction of his total capital which the share of each may represent),
assuming that the rate of profit is the same. Consequently his demand covers
only two-thirds of their supply, while his own total demand amounts to
only four-fifths of his own supply, measured in value.

It still remains for us, incidentally, to investigate the problem
of turnover. Let the total capital of the capitalist be £5,000, of
which £4,000 is fixed and £1,000 circulating capital; let this
1,000 be composed of 800c plus 200v, as assumed above.
His circulating capital must be turned over five times a year for his total
capital to turn over once. His commodity-product is then equal to £6,000,
i.e., £1,000 more than his advanced capital, which results in the
same ratio of surplus-value as above:

5,000 C : 1,000(c + v) : 20s

This turnover therefore does not change anything in the ratio of his total
demand to his total supply. The former remains one-fifth smaller than the
latter.

Suppose his fixed capital has to be renewed in 10 years. So the
capitalist pays every year one-tenth, or £400, into a sinking fund
and thus has only a value of £3,600 of fixed capital left plus £400
in money. If the repairs are necessary and do not exceed the average, they
represent nothing but capital invested later. We may look at the matter
the same as if he had allowed for the cost of repairs beforehand, when
calculating the value of his investment capital, so far as this enters
into the annual commodity-product, so that it is included in the one-tenth
sinking fund payment. (If his need for repairs is below average he is so
much money to the good, and the reverse if above. But this evens out for
the entire class of capitalists engaged in the same branch of industry.)
At any rate, although his annual demand still remains £5,000, equal
to the original capital-value he advanced (assuming his total capital is
turned over once a year), this demand increases with regard to the circulating
part of the capital, while it steadily decreases with regard to its fixed
part.

We now come to reproduction. Let us assume that the capitalist
consumes the entire surplus-value m and reconverts only capital C of the
original magnitude into productive capital. Then the demand of the capitalist
is equal in value to his supply; but this does not refer to the movement
of his capital. As a capitalist he exercises a demand for only four-fifths
of his supply (in terms of value). He consumes one-fifth as a non-capitalist,
not in his function as capitalist but for his private requirements or pleasures.

This assumption is tantamount to assuming that capitalist production
does not exist, and therefore that the industrial capitalist himself does
not exist. For capitalism is abolished root and branch by the bare assumption
that it is personal consumption and not enrichment that works as the compelling
motive.

But such an assumption is impossible also technically. The capitalist
must not only form a reserve capital to cushion price fluctuations and
enable him to wait for favorable buying and selling conditions. He must
accumulate capital in order to extend his production and build technical
progress into his productive organism.

In order to accumulate capital he must first withdraw in money-form
from circulation a part of the surplus-value which he obtained from that
circulation, and must hoard it until it has increased sufficiently for
the extension of his old business or the opening of a side-line. So long
as the formation of the hoard continues, it does not increase the demand
of the capitalist. The money is immobilised. It does not withdraw from
the commodity-market any equivalent in commodities for the money equivalent
withdrawn from it for commodities supplied.

Credit is not considered here. And credit includes for example
deposits by the capitalist of accumulating money in a bank on current account
paying interest.

Notes

7. End of Manuscript V. What follows to the end of the chapter, is a note contained in a notebook of 1877 or 1878 amid extracts from various books. — F.E.